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Economic value added

rima (ca) (142 Points)

18 March 2016

Please clarify what is the right approach for EVA

Is it EBIT(1-tax) or EBIT(1-tax)+ Interes(net of tax)

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3 Replies

Amit Kanunga (Article Assistant and Post Gradute) (644 Points)
Replied 18 March 2016

Economic value added (EVA) is a measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis). (Also referred to as "economic profit".)

The formula for calculating EVA is as follows:

= Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital)

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Saliq Ansari (CA_Final Student) (885 Points)
Replied 18 March 2016

Rightly said by Mr. Amit Kanuga,

EVA = NOPAT - Cost of Capital.

But it seems your query was regading the formula of NOPAT,

The Correct Formula for NOPAT is either of the following

EBIT(1-T)
PAT + Interest (1-T)

And for your second query about which one is a better approac, Any of the above tow methods of Calculation will give same answer.

Amit Kanunga (Article Assistant and Post Gradute) (644 Points)
Replied 19 March 2016

Originally posted by : Saliq Ansari
	Rightly said by Mr. Amit Kanuga, EVA = NOPAT - Cost of Capital. But it seems your query was regading the formula of NOPAT, The Correct Formula for NOPAT is either of the following EBIT(1-T) PAT + Interest (1-T) And for your second query about which one is a better approac, Any of the above tow methods of Calculation will give same answer.